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Claiming interest on accrued debts


Kay Pysden takes a look at historic debts and the Late Payment Commercial Debts (Interest) Act 1998


The Late Payment Commercial Debts (Interest) Act 1998 (the Act) has been in place for some time now. It was designed to be a weapon that traders could use to stop serial late payment of their charges in commercial contracts. The Act provides that interest will run in respect of late payment of qualifying debts on which compensation may also be claimed. The Act provides a definition of qualifying debts as being “a


debt created by virtue of an obligation under a contract to which the Act applies to pay the whole or part of the contract price”. It is being suggested by some that this means that as long as the obligation is there, it does not matter when the debt arises, and it does not have to be a live debt. But is this correct? When a court interprets a statute, or indeed the terms of a


contract, it applies the ordinary and natural meaning to words and in doing that a judge will generally make reference to the Oxford English Dictionary definition. Therefore, one has to ask first “what is a debt?” The Oxford English dictionary states that this is


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“money owed or due; the state of owing money”. Owed or due means current, not future or past. Therefore, can a party claim interest and compensation under


the Act once the debt has been paid, albeit late? This must surely depend on whether the claiming party has made a demand for late payment interest and compensation during the existence of the debt, or if there has been any implied waiver or estoppel. Clause 21(D) in the BIFA 2017 Standard Terms and Conditions (the BIFA terms) provides that the Act shall apply to all payments due from the customer and that there shall be no waiver unless agreed in writing by authorised officers of the parties.


Courses of action What happens if the Member has a late paying customer and demands the payment, making no reference to 21(D), and then receives the payment and takes no action to point out that the customer needs to pay interest and compensation, or has not incorporated the BIFA terms? The reality is that if the Member has tight credit control


procedures and presses for payment early after the credit period has expired, the amount of interest and compensation will be negligible. But what if the position is repeated over and over again? The sum that would have been due for all breaches will


July 2019


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